Hanesbrands (HBI) Lags Q3 Earnings Estimates, Lowers Guidance
Hanesbrands Inc. HBI reported weaker-than-expected third-quarter 2023 results, with the bottom and top lines missing the Zacks Consensus Estimate. Both metrics declined year over year. Considering the slowdown in consumer spending in Australia, along with softness in the U.S. activewear category, management lowered its 2023 guidance.
Q3 in Detail
The company posted adjusted earnings from continuing operations of 10 cents per share, missing the Zacks Consensus Estimate of 11 cents. The metric declined from 29 cents per share reported in the year-ago quarter.
Net sales from continuing operations declined 9.5% to $1,511.3 million and came below the Zacks Consensus Estimate of $1,544 million. The metric includes a $4 million negative impact from foreign exchange rates. On a constant-currency (cc) basis, net sales fell 9.3%. The downside was caused by declines in U.S. Activewear and a persistent macro-driven slowdown in consumer spending affecting Australia. These factors more than offset growth in U.S. Innerwear and strength in Latin America and Japan.
Global Champion brand sales tumbled 19%, with a decline of 16% in the United States and 22% internationally. Global Champion brand sales fell 20% at cc. International brand sales declined 24% on a cc basis compared with the prior-year quarter.
Adjusted gross profit came in at $536 million, which was below our expectation of $542.1 million. The adjusted gross margin was 35.5%, up nearly 100 basis points (bps), exceeding our anticipation of 35.3%. The upside was driven by benefits from price increases and cost-saving initiatives.
Commodity and ocean freight inflation represented almost 135 bps of margin headwind as it continues to sell through higher-cost inventory. In addition, an unfavorable business mix and input cost inflation were hurdles.
Adjusted SG&A expenses decreased 3.7% to $392.9 million. The metric, as a percentage of net sales, increased 160 bps year over year to 26%. We had expected adjusted SG&A expenses, as a percentage of net sales, to increase by 130 bps to 25.7%.
Adjusted operating profit came in at $143 million, down from $168 million in the third quarter of 2022. Adjusted operating margin stood at 9.5%, down nearly 60 bps. We had expected adjusted operating profit and margin to be $147.1 million and 9.6%, respectively.
Segmental Details
Innerwear: The segment’s sales fell 0.4% year over year to $622.6 million on softness in its Men’s business. However, market share gains across its Men’s, Women’s and Socks categories, along with a successful back-to-school campaign and improved on-shelf availability, supported its results. The segmental operating margin was 17.5%, up 150 bps.
Activewear: Sales decreased 16.8% to $383.6 million from the year-ago quarter’s level due to soft consumer demand and excess channel inventory. We had expected the segment’s sales to decline by 10.9% in the quarter. The company’s strategic brand-related actions continued to affect Champion sales in the U.S. The segmental operating margin was 6.5%, which contracted 510 bps year-over-year.
International: Revenues in the International business declined 12.2% year over year to $440.9 million. This included $4 million of unfavorable currency headwinds. We had expected the segment’s sales to decline by 8.1% during the quarter. We note that growth in Innerwear across the Americas and Champion in Japan was offset by softness in Australia stemming from a challenging macroeconomic environment. The segmental operating margin stood at 12.7%, down 120 bps.
Other Financial Details
The Zacks Rank #3 (Hold) company ended the quarter with cash and cash equivalents of $191.1 million, long-term debt of $3,310.3 million and total stockholders’ equity of $274 million. It had roughly $1 billion of available capacity under its credit facility at the end of the quarter.
For the quarter, the company provided $155.1 million in net cash from operating activities. Free cash flow was $152.9 million in the third quarter.
2023
Guidance
For 2023, net sales from continuing operations are now anticipated to be about $5.70 billion, including an anticipated currency headwind of nearly $65 million. The midpoint of the guidance suggests a nearly 9% year-over-year decline on a reported basis and an 8% decline on a cc basis. The metric was expected to be 5.80-$5.90 billion earlier.
Adjusted operating profit from continuing operations is now likely to be $425 million, including a currency headwind expectation of roughly $10 million. Earlier, management had anticipated the metric to be in the $425-$475 million range. In 2023, Hanesbrands expects to incur charges associated with the Full Potential plan of $31 million.
Adjusted earnings per share (“EPS”) from continuing operations is envisioned to be about 12 cents compared with the 16-30 cents projected earlier. Cash flow from operations is forecast to be nearly $500 million, while capital investments are estimated to be almost $100 million.
For fourth-quarter 2023, net sales from continuing operations are expected to be $1.36 billion, including a projected headwind of nearly $12 million from currency rates. The guidance reflects an 8% year-over-year net sales decline on a reported basis and a 7% decline on a cc basis.
Adjusted operating profit from continuing operations is expected to be $131 million. Adjusted EPS from continuing operations is envisioned to be approximately 9 cents. Hanesbrands expects to incur charges associated with the Full Potential plan and the global Champion performance plan of $15 million in the same quarter.
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HBI’s shares have decreased 18.4% in the past three months compared with the industry’s 1.8% decline.
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